Measuring Prosperity Inclusively and Sustainably
Diane Coyle, Dennis Snower, Colin Mayer Policy Brief
From Conditionality To Commitment: A Sustainability-linked Approach To Financing The Green Transition
There is an urgent need for innovation in sovereign financing. Credit enhancements in the form of bond guarantees, paired with a key performance indicator (KPI)-linked financing in the form of sustainability-linked bonds and loans, have demonstrated their potential to unlock substantial sums of funding for the green transition. To scale these innovations, multilateral development banks and development finance institutions need new approaches to optimize their balance sheets and engage with sovereign borrowers. This T20 Policy Brief recommends that the G20 champion a KPI-linked approach that can leverage the advantages ofboth loans and guarantees in a bundled financing package, thereby maximizing the volume of concessional and private capital that can be mobilized. A sustainability-linked approach ensures that credible commitment, robust performance tracking, and effective incentive mechanisms are in place to drive action towards sustainable development goals.
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